Middletown's Custom House Coffee lets employees buy shares of company

“It’s a way to sustain the business and keep it operating the way I want to operate it,” says Custom House Coffee owner Bob Mastin.

By Allison FarrellySpecial to The Journal

MIDDLETOWN — Employees of Custom House Coffee now own roughly 5 percent of the corporation, effective Jan. 1.

Owner Bob Mastin decided to transition ownership of the business to his employees out of concern for the “sustainability and continued viability” of the company he created 15 years ago.

“It’s a way to sustain the business and keep it operating the way I want to operate it,” Mastin said.

The corporation includes both the café and the coffee roasting facility at 796 Aquidneck Ave. Mastin said in addition to their coffee shop, Custom House Coffee roasts 1,500 pounds of coffee a week, supplying 50 restaurants, markets and cafes, primarily in New England.

In the first round of sale, Mastin made 2,000 of the 10,000 total shares available for purchase at $31 a share. Of the 16 employees eligible to buy shares, 13 Custom House Coffee employees cumulatively bought 538 shares.

Mastin said his transition plan was not designed with tax consequences in mind. Rather, he drew on his master's degree in accounting to create a method to fairly allocate shares of the company. Rather than sell his company through an Employee Stock Ownership Plan (ESOP), a tax-based transition plan, he created his own unique formula for selling the company. “It was way too complicated,” Mastin said of ESOPs. “I didn’t want the IRS to dictate how I could sell my company to my employees.”

The system he created is intended to reward long-term employees, and allow them to accumulate ownership. Per his formula, employees must have worked a minimum of one shift per month for the past year at Custom House Coffee to be eligible to purchase stock. The formula uses respective employees' gross earnings since 2011 to determine what percentage of the shares offered for sale each employee is entitled to buy.

“I felt it was fair,” Mastin said of the system he created. “I felt it rewarded people who had been here a long time. It’s easy to calculate and easy to defend.”

Assistant general manger Jessica James, 35, now is the second-largest shareholder of Custom House Coffee, second to Mastin. She purchased 239 shares, her maximum after working at Custom House Coffee for four years.

“It’s fair and simple and clear, which makes it easy for us with no business background to feel comfortable buying in,” James said of Mastin’s sale plan.

Because she has worked at Custom House Coffee for only a year, store manager Katie Aultman, 25, was eligible to buy 43 shares. She said her decision to purchase her full allotment was a calculated risk, but a smart one, and aims to accumulate more ownership. “This place is thriving and I see that every day,” she said. “I see that we’re growing.”

Mastin said that Custom House Coffee’s numbers reflect consistent company growth. He estimates that the company grossed $900,000 in 2016, an increase from $800,000 in 2015.

With the sale, Mastin also created an executive council, made up of himself and the top three shareholders. The council has yet to convene, but he intends they will act to determine timely dividend distributions to owners and vote on issues such as major acquisitions or hiring/firing managers.

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